Executive Compensation and COVID-19

Written By Aileen Boniface, Managing Director, Head of ESG & Joni Konstantelos, Managing Director &

May 6, 2020

Preparing for investors, proxy advisors, and activists in a post-Corona world

Companies around the world, faced with once-in-a-generation fiscal and economic pressures, are making difficult business decisions right now.

Following the initial wave of crisis communications, numerous companies are beginning to signal budget austerity and shared sacrifice through executive compensation reductions. These communications have varied from company to company in terms of specificity, the number of executives being impacted, the element of pay being targeted, and the timeframe around these reductions.

Keep in mind that despite the current market volatility, executive compensation will still be evaluated at the end of the fiscal year based on pay-for-performance alignment and compensation committee rationale.

Be sure you are communicating with investors early. Decisions made today will impact investor votes down the road.

Current Landscape

Types of Adjustments

After nearly two months of market turmoil, many companies have shifted from immediate response plans and cost-cutting measures, to business continuity communications and executive compensation adjustments.

While some companies have specifically outlined the element of pay and percentage impacted, many companies have used vague language when announcing changes. Some announcements have stated that executives will be forgoing compensation for the rest of the year, or that executive base salary will be reduced by 50 percent until further notice.

Be sure to provide reasonable details regarding the anticipated duration of the reduction, assumptions used to calculate total compensation, and the element of pay being targeted. Otherwise it may be unclear to your investors whether the reduction is meaningful or intended to align with corporate strategy.

Clermont has monitored executive compensation reduction announcements during the past few months, and our monitoring indicates that—where specific details are provided—companies are overwhelming focusing on base salary adjustments.


Sector Spotlight

We actively monitor a group of select industries, as outlined below. Within each industry, we monitor publicly disclosed peers for these select companies. Of the total companies monitored, the graphs below break down % adjusted versus non-adjusted for each industry


Airline companies were among some of the first to announce changes to executive compensation. United Airlines filed an 8-K on March 10th disclosing that its CEO and President would forgo their base salaries through the end of June, while Spirit Airlines filed an 8-K the week of March 15th to disclose that its CEO’s base salary would be reduced by 30%. Updates from the auto industry began to trickle in the following week with Group 1 Automotive, Meritor, TrueCar and Ford all announcing changes to executive compensation the week of March 23rd.

Evolution of press releases, 8-K filings, and proxy statement disclosures

Press releases and 8-K filings on executive compensation have ranged from 30% salary reductions, as seen with Bed, Bath and Beyond, to announcements that the CEO and Chairman will forgo all pay until the end of the year, as seen with Boeing. In the case with Ford, the Company announced that executives’ base salary would be deferred for at least five months and repaid once the Company pays off a certain portion of its debt.

Our monitoring also indicates that executive compensation adjustments are extending beyond the CEO. In many cases, NEO compensation is reduced at a lower percentage than CEO reductions, as seen with TrueCar. It’s also not uncommon to see companies’ boards of directors forgoing their cash compensation during this time, with both the percent reduction and timeframe ranging greatly across companies. Some boards like OneWater Marine’s are forgoing all of their cash compensation for a period of six months, while Winnebago’s board is reducing their cash compensation by 25% for the remainder of the fiscal year.

While we have seen a number of 8-Ks and press releases announcing updates to executive compensation, companies are also discussing COVID-19 impacts on executive compensation in recently filed proxy statements. TrueCar updated shareholders on 2020 compensation decisions affected by the coronavirus, referring back to information disclosed in their recently filed  8-K. Red Robin’s proxy statement also echoed their recently filed press release announcing base salary reduction of NEO’s by 20%, along with Board reductions of annual cash retainers and committee chair fees by 20%.

What Happens Next?

Communicate with your investors before your next annual or special meeting

Executive compensation decisions today will affect investor votes down the road. Boards and compensation committees will have to justify in-flight or mid-stream decisions to their investors come proxy season 2021, if not sooner. Be sure to get your investors on board with decisions or adjustments taking place now, before votes are cast.

Delays in 2020 Compensation Programs

In recently filed proxy statements, a number of companies are discussing delays in 2020 program determinations. It is reasonable for compensation committees to take into account these unusual circumstances before determining the nature and composition of NEO compensation for 2020. Once determinations are made, however, be sure to discuss these determinations as part of your annual shareholder engagement strategy. Investors will still be looking for an appropriate mix of fixed and variable features as well as rigorous short- and long-term goals aligning with corporate goals.

Contemporaneous Reduction Announcements

We’ve seen several examples of contemporaneous announcements on general reductions to compensation, both at the board and executive level. But what is really being adjusted? Investors (and regulators) are interested in the extent to which companies are materially amending compensation programs during this time of heightened uncertainty. Let your investors know which specific element of compensation is being adjusted whether it be base salary, the annual incentive program, the long-term incentive program, or some combination thereof.

Mid-Stream Adjustments to Targets

Companies considering mid-stream or in-flight adjustments to performance targets should do so with care and investor communication. Despite the current market instability, mid-stream adjustments will be met with scrutiny from investors and proxy advisory firms at the end of the fiscal year.  Communicate with your investors now about structural changes, including the rationale and how adjusted performance targets are tied to business recovery or improvement goals. Avoid choosing metrics and targets that significantly diminish rigor, motivate excessive risk-taking, or present a windfall risk. Investors and proxy advisors will still be looking for meaningful goals.

Existing Discretion

Companies may choose to exercise the existing discretionary authority built into incentive programs to respond to volatility. In these instances, a framework for the rationale behind applying discretion is a must. In their qualitative review of the company’s Compensation Discussion and Analysis, investors and proxy advisors will evaluate how the compensation committee determined payouts based on discretionary measures. In particular, if a pay-for-performance disconnect exists, the ratio of discretionary pay, the framework used, and whether individual goals were predetermined If the company plans to use existing discretionary elements to account for market volatility, be sure to prepare a meaningful framework now that is sufficiently rigorous.

Performance Metrics and Goal Setting

We are likely to see companies adjust performance metrics, goals, or targets in response to the drop in the market and possible recession. Now may be the time to consider structural changes to performance metrics and goals, including moving from absolute measures to relative measures, adding a performance gate or TSR modifier, or considering additional non-financial performance metrics tied to ESG metrics such as employee health and safety, environmental and social goals, or customer service. Be sure to communicate substantial changes made to the compensation program with your investors.

Repricing Stock Options

Stock options that were intended as retention or incentive awards are likely underwater due to the extreme declines in stock price. Companies may be considering repricing stock options, however this act is generally not popular with institutional shareholders and proxy advisory firms unless it is shareholder approved, which is still subject to a case-by-case review. Of the companies we are monitoring, we have not seen stock option repricing.


In these uncertain times, there is no one-size-fits-all strategy for building or adjusting an executive compensation program. Most importantly, keep in mind is that irrespective of how the Board responds to executive compensation right now, shareholders and proxy advisors will be looking for strong rationale behind these decisions. Start preparing a clear framework that outlines the strength of the existing 2020 compensation structure – or – the rationale behind mid-stream or in-flight changes.

To date, some companies have avoided investor communications on executive compensation, perhaps not without reason. Without proactive communication, however, companies should prepare for follow-up questions on their next earnings call or investor meeting. Otherwise, you are increasing the risk of an unexpected vote outcome later down the road.

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